LAF Meaning

LAF is the term used in the context of banking, full form of LAF is Liquid Adjustment Facility. During economic crisis when everybody is in panic and there is pressure on the banking system liquid adjustment facility comes handy because it is used when there is shortage of cash in the bank, and in order to resolve such crisis of shortage of funds banks borrow money through repurchase agreement from central banks.

It can be better understood with the help of an example suppose you get salary on 1st day of every month and if on 29th you are short of funds then for 2 days you will borrow money from your friend or family so that you can pay your daily expenses. After you receive your salary you will pay back to the person from whom you borrowed and hence tide out the liquidity crisis, same applies to the banking system also (though it is on much larger scale).

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